through enhancing central tax and custom

REPUBLIC OF
collections from imported and domestic
Recent developments oil products.
Along with growing debt, there was a

YEMEN Since the escalation of violent conflict in

Table 1
P o pulatio n, millio n
GDP , current US$ billio n
GDP per capita, current US$
a
Internatio nal po verty rate ($ 1.9)
a and business opportunities. Operating
Natio nal po verty rate
a
Gini index
b
Scho o l enro llment, primary (% gro ss)
b
Life expectancy at birth, years
Source: WDI, M acro Poverty Outlook, and official data.
Notes:
(a) M ost recent value (2014), 2011 PPPs.
(b) M ost recent WDI value (2016).
Relative to pre-conflict levels, output is
estimated to have contracted by about 40
percent, and UNOCHA estimates that
22.2 million people in Yemen — approxi-
mately three-quarters of the entire popula-
tion — need humanitarian assistance.
The protracted conflict has created a “war
economy” where fiscal and monetary poli-
cy are dominated by short-term considera-
tions related to holding fragile and oppor-
tunistic coalitions together.
March 2015, the economy has deteriorated
sharply. While official statistics remain
unavailable, anecdotal evidence suggests
2018 that GDP contracted by an accumulated
29.0 39 percent since the end of 2014. The con-
26.9 flict has caused widespread disruption of
929 economic activities, with substantial re-
18.8
duction in jobs, private sector operations,
48.6
costs rose severely due to insecurity and
36.7
lack of supplies and inputs, leading to
92.4
massive layoffs to the country’s formal
65.0 and informal workforce.
The decline in economic activity has led to
a significant decline in the collection of
public revenue and increased the country’s
debt. The most recent estimated fiscal data
show public revenues declining from near-
ly 24 percent of GDP before the conflict, to
an estimated 8 percent of a much-reduced
GDP in 2018. In order to finance the deficit,
the government continued to use central
bank credit and accumulate unpaid com-
mitments, including public sector salaries.
However, in November 2018, the Cabinet
endorsed measures which promise to re-
store fiscal policy transparency and im-
prove public finance management. The
budget framework will aim to ensure defi-
cit reduction to safe limits through ration-
alizing current expenditures, enhancing
public revenues, and non-inflationary defi-
cit financing. Other endorsed measures
focus on improving the efficiency of state’s
revenue collection capacity, including
sharp increase in inflation and a large de-
preciation in the exchange rate over the
past year which dramatically reduced the
purchasing power of households. Prelimi-
nary estimates indicate the inflation rate
for food prices was approximately 55 per-
cent in 2018, up from approximately 25
percent in the previous year; and petrol
and diesel prices in the third quarter of
2018 respectively surged by 30 and 50
percent in the northern parts of the coun-
try relative to price at the same time in the
previous year. The acceleration of infla-
tion is particularly difficult to cope with
given already substantial loss in real in-
come households have experienced, and
the exhaustion of available coping strate-
gies four years into conflict.
According to the latest official update to
the Integrated Food Security Phase Classi-
fication (IPC) in December 2018, approxi-
mately 20.1 million people are facing se-
vere and acute food insecurity, of which,
nearly 5 million people are either experi-
encing famine-like conditions or famine.
Food assistance has significantly increased
since the beginning of 2017 with some
estimates suggesting half of the popula-
tion receives aid, but without both further
increasing assistance and addressing some
of the economic causes of the crisis, the
food emergency will continue.
The humanitarian response continues to
support the basic needs of a significant
share of the population in difficult cir-
cumstances. There are approximately 153

FIGURE 1 Republic of Yemen / Public finances FIGURE 2 Republic of Yemen / Actual and projected
poverty rates and real GDP per capita

Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU)
Domestic Revenues
40 0 100 20000
Grants
Current Expenditure
Capital Expenditure 80
Fiscal deficit excl. grants (rhs) 15000
30
-5 60
10000
20 40

-10 5000
20
10

0 0
2005 2007 2009 2011 2013 2015 2017 2019 2021
0 -15 International poverty rate Lower middle-income pov. rate
2010 2011 2012 2013 2014 2015 2016 2017 2018 Upper middle-income pov. rate Real GDP pc

Sources: Government of Yemen, IMF and World Bank staff calculations. Sources: World Bank. Notes: see Table 2.

MPO 180 Apr 19

humanitarian partners on the ground- 109
national non-governmental organization
(NGO’s) 36 NGO’s, and 8 UN agencies.
The World Bank supports the most vul-
nerable groups with approximately
US$1.3 billion through six large emergen-
cy operations providing critical health and
other services, complementary income
opportunities, and cash transfers. Howev-
er, coverage by humanitarian partners is
not uniform across the country, where
only 200 out of 333 districts in the country
are classified as “relatively accessible” by
the humanitarian response. Out of the 22
million Yemenis targeted by the humani-
tarian response, 1.5 million live in districts
with high access constraints.
The deterioration of conditions has translat-
ed into a significant worsening of poverty.
The share of the population living on less
than US$3.20 PPP per day (global poverty
line for Yemen’s former lower middle in-
come status) has dramatically worsened
since the conflict began, with projections
suggesting over three-quarters of the entire
population living below the poverty line.
However, in addition to monetary poverty,
all evidence suggests that households are
experiencing many overlapping monetary
and non-monetary deprivations. The lack of
access to many basic services, food, wide-
spread displacement, and insecurity has
placed extraordinary stress on households.
Outlook
Economic prospects in 2019 and beyond
will critically depend on stabilization of
the political and security situation. If vio-
lence can be contained by mid-2019, GDP
is projected to recover in the second half
of the year with a double-digit growth
rate. Much of the instability in macroeco-
nomic indicators—rapidly growing gov-
ernment debt, accelerating inflation relat-
ed to money printing for salaries, rapid
depreciation of the exchange rate- will
improve with an improvement in security,
easing of import barriers, the restoration
of government services, and a recovery of
the private sector.
However, even in this scenario, little of the
projected growth will translate into a sub-
stantial reduction of poverty. Rather, pov-
erty is projected to remain high with over
three-quarters of the population in 2019
living below US$3.20 PPP a day, and ap-
proximately half of the population living
below US$1.90 PPP a day. Given the bleak
outlook, massive foreign assistance would
continue to be required to fund recovery
and reconstruction in a post-conflict peri-
od. In particular, foreign assistance would
be needed to help restore basic services
and rebuild confidence in institutions.
Although the recent momentum for ces-
sation of hostilities is promising, there is
no definitive plan to achieve peace in the
near future. Parties to the conflict en-
gaged in peace talks for the first time in
over two years in December in Sweden.
However, continued conflict in the weeks
after the Sweden consultations demon-
strated the challenges in keeping the par-
ties engaged.
Risks and challenges
The sharp increase in violence in Al
Hudaydah in the past year, as well as the
logistical problems caused by the further
disruptions to the port, demonstrate that
households in many regions of the coun-
try might have to continue to cope with
conflict-related shocks well into medium-
term, with buffers already depleted.
The massive social and economic disrup-
tion caused by the conflict poses a tremen-
dous challenge for peace building. There
are significant divisions amongst the pop-
ulation on issues related to regional au-
tonomy, social exclusion, and grievances
over the conflict could continue to affect
the prospect of longstanding peace and
could threaten the country’s prospects for
sustainable peace.

TABLE 2 Republic of Yemen / Macro poverty outlook indicators (annual percent change unless indicated otherwise)

2016 2017 2018 e 2019 f 2020 f 2021 f

Real GDP growth, at constant market prices -13.6 -5.9 -2.7 2.1 10.0 8.5
Private Consumption -5.3 0.0 -7.6 -1.5 0.1 9.4
Government Consumption -26.9 -31.7 -4.1 5.3 12.6 14.9
Gross Fixed Capital Investment -26.2 39.8 137.6 22.4 15.5 7.9
Exports, Goods and Services -66.2 -3.8 25.1 -14.9 305.4 7.0
Imports, Goods and Services -5.9 14.4 -9.2 -11.0 17.7 12.8
Real GDP growth, at constant factor prices -14.3 -5.8 -2.7 2.1 11.5 8.4
Agriculture -10.5 -6.6 -2.8 2.0 4.0 9.0
Industry -23.5 -3.6 -2.3 2.3 31.9 7.1
Services -10.5 -6.6 -2.8 2.0 4.0 9.0
Inflation (Consumer Price Index) -12.6 24.7 41.8 20.0 7.5 5.0
Current Account Balance (% of GDP) -2.8 -0.1 0.0 0.7 -1.9 -3.0
Net Foreign Direct Investment (% of GDP) 0.0 0.0 0.9 1.5 1.2 1.1
Fiscal Balance (% of GDP) -8.4 -4.9 -4.4 -5.1 -5.5 -3.2
Debt (% of GDP) 68.0 76.4 63.3 54.7 42.8 36.6
Primary Balance (% of GDP) -3.1 -4.7 -4.2 -4.9 -2.9 -2.0
a,b
International poverty rate ($1.9 in 2011 PPP) 42.6 48.2 51.9 52.1 47.0 43.1
Lower middle-income poverty rate ($3.2 in 2011 PPP) a,b 75.0 78.5 80.6 80.8 77.6 75.2
Upper middle-income poverty rate ($5.5 in 2011 PPP) a,b 91.8 93.2 94.0 94.1 92.8 91.9

So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices.
No tes: e = estimate, f = fo recast.
(a) Calculatio ns based o n 2014-HB S. A ctual data: 2014. No wcast: 2015-2018. Fo recast are fro m 2019 to 2021.
(b) P ro jectio n using neutral distributio n (2014) with pass-thro ugh = 1 based o n GDP per capita in co nstant LCU.

MPO 181 Apr 19